Five things you should know today
1) Why risk assessment is so difficult, Part 1: We are human
As the COVID-19 pandemic subsides, millions of people around the world face difficult decisions about when is it “safe” to return to “normal”. However, the commendable work of public health officials around the world notwithstanding, many countries have been unable to reduce the rate of transmission (or “R”) below 1, at which point the disease eventually disappears. That means we all will have to make risk assessments about when to engage in different activities. As Gillian Tett writes in the Financial Times, this is difficult for the vast majority of human beings. Societies, writes Tett, “are not like a Newtonian physics equation, where people act with the predictability of gravity; humans have psychological biases, cultural assumptions and inconsistent incentives.”
Furthermore “our sense of risk in an epidemic is shaped by the question of who we think has the responsibility for handling it…Sometimes it is considered the responsibility of individuals to manage risk (under the principle of caveat emptor). On other occasions there is a more egalitarian approach: everyone in a community voluntarily tries to protect everyone else. A third framework uses hierarchical controls: leaders manage risk by issuing orders. Then there is a fourth option: fatalism, when nobody tries to manage risks at all.”
Thus, mathematical risk models, while useful and perhaps persuasive, are not binding. The perception of risk is, inevitably, a subjective and social process. That means that power relations, trust differentials, and structural and systemic inequalities all affect how we evaluate risk. In sum, our very humanity complicates risk assessment. That is why it is so difficult.
2) Why risk assessment is so difficult, Part 2: There is a lot we don’t know
Risk assessment will also be complicated by the nature of the SARS-CoV-2 virus. Doctors and other experts simply don’t know enough to understand either the virus or the COVID-19 disease. As reported in the Washington Post, doctors “don’t know why there are so many disease presentations, said Angela Rasmussen, a virologist at the Center for Infection and Immunity at Columbia University’s Mailman School of Public Health. Bottom line, this is just so new that there’s a lot we don’t know.”
What we do know is that this more than a respiratory disease: “It attacks the heart, weakening its muscles and disrupting its critical rhythm. It savages kidneys so badly some hospitals have run short of dialysis equipment. It crawls along the nervous system, destroying taste and smell and occasionally reaching the brain. It creates blood clots that can kill with sudden efficiency and inflames blood vessels throughout the body.”
If doctors don’t really know what is going on, then how are we supposed to make an informed decision about returning to work, getting on a plane, or going to a music concert? Furthermore, in that situation who can we trust to tell us it is safe for us and our families?
3) New cluster of infections forces Seoul to close bars
On the fourth day after the reopening of bars and restaurants in Seoul, South Korea, “the mayor of Seoul ordered all the capital’s bars and nightclubs shut down indefinitely after the discovery of a cluster of dozens of coronavirus infections”, reports the New York Times. South Korea has earned the admiration of the world for its efforts in controlling the spread of COVID-19 without having to completely shut down its economy. It managed to do that with widespread testing, hospitalization of positive cases, aggressive contact tracing, and isolation of people exposed to the virus.
Yet, “government officials, health workers and much of the public know full well that until there is a vaccine, relaxing restrictions will lead to more infections, and possibly more deaths. The trick will be to do it without allowing the contagion to come roaring back.”
Thus, as life moves slowly back to “normality” South Korean authorities are keeping in place a strong surveillance and monitoring system to avoid any relapses. A case study, perhaps, for Puerto Rican public health authorities.
4) It is good economic policy to help the states
Laura Tyson, former chair of the US President’s Council of Economic Advisers, has written an article for Project Syndicate on the need for the federal government to help the states as they take on the brunt of the fight against the SARS-CoV-2 virus.
As we have stated before in this Briefing, state revenues are declining rapidly as a result of the lockdowns imposed to prevent the spread of COVID-19. While expenditures, mostly on direct health services and equipment and for Medicaid, have increased significantly. Yet, “unlike the federal government, state governments are constrained by balanced-budget laws. Without federal funds to cover their looming fiscal gaps, they will have to raise taxes or implement deep spending cuts.”
But, “if state governments are forced to slam on their fiscal brakes, much of the benefit from the federal government’s own countercyclical stimulus measures will be offset, resulting in an unnecessarily deeper recession, higher unemployment, and a slower recovery.”
According to Tyson, during the Great Recession “state governments suffered a budget hit of about $600 billion, but received only $150 billion in federal aid. State governments therefore had to draw down their accumulated reserves (rainy-day funds), increase taxes, and cut “discretionary” spending. These austerity measures were a significant drag on growth. State governments were forced to reduce employment in essential services such as education, public health, and hospitals, with an estimated negative multiplier effect of 1.7 or more (meaning that each $1 of cuts led to a $1.70 loss of economic activity).”
Furthermore, “austerity had long-lasting effects. Real (inflation-adjusted) state spending did not exceed its pre-recession peak until 2019, and state and local payrolls did not return to their pre-recession highs until the end of the year, just as COVID-19 was emerging.”
Thus, the macroeconomic case for helping the states is straightforward and the math is simple. What’s missing is the political will.
5) The Wharton School at the University of Pennsylvania releases coronavirus policy simulator
The Wharton School has issued an interactive tool to simulate the health and economic impact of reopening the economy and lifting social distancing rules. According to the University of Pennsylvania:
The model “uses an epidemiological framework along with empirical estimates to simulate the health and economic effects of easing state lockdown policies. Users specify both a “policy” level and “behavior” level. The policy level represents the extent to which states reopen and has three settings:
- Baseline Policy: Each state maintains its current restrictions as of April 30. Some states are subject to an additional adjustment to bring their infection rates under control.
- Partial Reopening: States immediately lift emergency declarations, stay-at-home orders, and school closures.
- Full Reopening: States immediately lift all orders listed above as well as restrictions on the operation of businesses and restaurants.
The behavior level represents individuals’ decisions on whether to continue social distancing practices. This behavior level has two settings:
- Baseline Behavior: Each individual maintains their current social distancing practices.
- Reduced Distancing: Individuals relax their social distancing efforts, returning fully to pre-pandemic behavior by the end of December 2020.”
The simulator “shows national forecasts for total reported coronavirus cases, cumulative deaths due to coronavirus, year-over-year percent change in GDP and change in jobs during the previous 7 days.”
According to the simulator, a nationwide full reopening “would lead to an additional 233,000 deaths by the end of June relative to not reopening. GDP on June 30 would increase by about 1.5 percentage points relative to not reopening. Almost all net job losses between May 1 and June 30 would be eliminated.”
But if “individuals see full reopening as a “return to normal” and as a result relax their own voluntary social distancing practices—behaving in a manner consistent with Feb 1, 2020—cumulative national deaths would reach 950,000 by June 30. Job losses would turn to a net positive of 4.1 million in jobs gained, erasing some of the job losses prior to May 1.”
We remind readers that the objective of these exercises is not to predict or forecast the future, but rather to provide guidance to policymakers about the possible effects of different policy interventions and to help in the planning prior to policy implementation. The results, nonetheless, highlight the need for both intensifying public health efforts and providing support to workers until a vaccine or a treatment is found.
Quote of the Day
“I had seen birth and death,/But had thought they were different; this Birth was/Hard and bitter agony for us, like Death, our death.”
—T. S. Eliot
Note from the editor
A lot of people ask us about when will the economy go back to normal. The real answer is that nobody really knows. But we can give you some questions to help you think through the issue:
- When will you be ready to walk into a crowded bar? Shopping mall? Sports stadium? Music arena? How will you react if somebody bumps into you or coughs/sneezes in your face?
- When do you think you will next take a flight? What will you do if the person sitting next to you keeps coughing during the length of the trip?
- When will you feel comfortable sleeping in a hotel room for several nights?
- When will you be ready to take your spouse/partner and family to a sit-down restaurant that smells like Clorox and be served by a guy who looks like a surgeon?
- When do you think it will be safe for your children to go back to school? Play basketball? Eat in the school cafeteria?
- How about going to the gym for a good sweaty workout with complete strangers?
And so on and so forth. The list of activities that prior to the pandemic were considered relatively safe and normal but are now fraught with risk is immense and assessing those risks is not necessarily straightforward. To put this in context, consider this: the probability of dying in an airplane crash is 1 in 11 million. Most people consider that a low risk and usually wouldn’t think twice about it. But if you get infected with SARS-CoV-2, the probability of dying from COVID-19 is about 1 in 100 (reported mortality figures are overstated due to low testing levels) and the probability of getting infected with SARS-CoV-2 in an airplane flight is unknown at this point. So how do you assess the risk?
Keep in mind this is precisely the type of question people will be asking as we lift social restrictions. And the fate of the economic recovery will depend on the answers. After all, that elusive thing we call “the economy” is nothing more than the result of billions of decisions made every day by governments, businesses, and most of all, people.
This is the end of today’s briefing.
Stay safe and well informed!